Pound US Dollar (GBP/USD) Exchange Rate Rebounds amid Mixed Risk Appetite
(Updated 14:30, 23/6/22) The Pound US Dollar (GBP/USD) exchange rate recovered from this morning’s slump as an improving market mood dampened demand for the safe-haven US Dollar (USD).
Risk appetite can often be traced through the equity markets, and European stocks dropped as today’s trade began. Markets then recovered, supporting GBP/USD, although they have since started to edge lower again.
The Pound (GBP) is also enjoying some cross-driven strength from a sell-off in the Euro (EUR). The Euro Pound (EUR/GBP) exchange rate tumbled following the Eurozone’s dire PMIs, and this seems to have lifted Sterling across the board.
At the time of writing, the Pound US Dollar pair is trading at around $1.2255, virtually unchanged from today’s opening levels.
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Pound US Dollar (GBP/USD) Exchange Rate Falls as Recession Fears Rattle Markets
The Pound US Dollar (GBP/USD) exchange rate fell sharply this morning as worrying government borrowing figures dented the Pound (GBP). Meanwhile, a downbeat market mood is supporting the safe-haven US Dollar (USD).
At the time of writing, GBP/USD is trading at $1.2184, down roughly 0.48% from $1.2243 at the start of today’s European session.
Pound (GBP) Slips as Economic Concerns Broaden
Pound Sterling slumped against the US Dollar this morning as the latest public sector spending figures add to concerns about the UK economy.
As spending outstripped tax income last month, the UK government had to borrow £14bn – £3.7bn more than the Office for Budget Responsibility (OBR) forecast.
Meanwhile, interest payments on UK national debt are up 70% from last year.
The latest data indicates how the cost-of-living crisis gripping the nation is also hitting public finances, potentially spelling more trouble for the UK economy.
However, the UK’s flash PMIs for this month have surprised markets. While manufacturing declined by more than forecast, the UK’s vital services sector score remained unchanged.
It’s worth noting that the PMIs have not been adjusted for the Queen’s Platinum Jubilee bank holiday, which may explain the unexpected results and cap any upside.
Additionally, business confidence and new orders both tumbled.
The UK flash PMI held steady at 53.1 in June, but the forward-looking indicators from the survey deteriorated sharply, down to levels consistent with recession https://t.co/GwCgDV0eMT pic.twitter.com/uoDAF8mJ23
— Chris Williamson (@WilliamsonChris) June 23, 2022
This data adds to fears that the UK is heading towards a recession, putting more pressure on the Pound.
US Dollar (USD) Strengthens as PMIs Spook Markets
As for the US Dollar, a risk-off mood is seeing investors flock to the safe-haven currency.
As central banks around the world attempt to tame inflation by hiking interest rates, markets and economists believe a global recession could be on the way.
This morning, the Eurozone PMIs added to recession fears. Manufacturing and services activity slumped, with the PMIs printing well below forecasts. This has spooked European investors, triggering a flight to safety.
Eurozone PMI drops markedly in June as recession concerns broaden pic.twitter.com/ZkJVHpgymC
— Bert Colijn (@BertColijn) June 23, 2022
Pound US Dollar Exchange Rate Forecast: Risk Aversion to Persist?
As the morning unfolds, a further analysis of the UK PMIs could cause some movement. With the forward-looking indicators signalling a recession, GBP could fall further.
This afternoon the US PMIs are due out. Although less impactful than the ISM releases, these surveys could still affect the US Dollar. If the American economy seems to be in a stronger position than the UK economy, USD could climb.
Federal Reserve Chair Jerome Powell will testify in front of Congress again this afternoon. During yesterday’s testimony, Powell conceded that Fed rate hikes could trigger a US recession. This caused USD to slip, so any such comments today could also hurt the ‘Greenback’.